DBRS Assigns Provisional Rating of “A” to Teranet’s Senior Secured Bonds

Dominion Bond Rating Service (DBRS) has today converted its Issuer Rating of “A” on Teranet Inc. (Teranet or the Company) to a provisional Senior Secured Bonds rating of “A” in light of the proposed five-year and ten-year bond issues (Series 2006-1 and Series 2006-2) totalling approximately $465 million. Proceeds will be used to repay the credit facilities drawn in July to cover part of the redemption of the senior and junior bonds of Teranet’s predecessor.

The rating remains supported by: (1) the entity’s protected exclusivity over the management and operation of the Ontario land registry and writs systems until March 2017; (2) its strong profit margins and operating profile, as evidenced by the 14% EBITDA increase (excluding gains on swaps) reported for the three-month period to June 30, 2006; and (3) expectations of a manageable debt burden and solid debt service coverage going forward. Also contributing to the sound credit profile is the lower operating risk faced by the Company as a result of the substantial completion of the automation of the Ontario land parcel base (89% completed as at June 30, 2006), and the fact that debt servicing will have priority over distributions to unitholders.

Teranet maintains a considerable exposure to cyclical real estate activity, which introduces volatility in results. In addition, approximately 90% of revenues originate from user fees prescribed by or agreed to with the Province, limiting flexibility to grow revenue. The expiry of Teranet’s exclusive rights in March 2017 also adds an element of uncertainty to the profile, given the ability of the Province at that time to open the sector to competition. However, DBRS is of the view that the extensive expertise, widely-used proprietary software (Teraview) and well-established customer base of Teranet will provide substantial protection against any competitive pressures that may emerge in the future.

Total debt is currently projected to be roughly $100 million lower than the level of $568.7 million reported at June 30, 2006, as outstanding debt securities of Teranet’s predecessor were repaid in July with some of the proceeds from the June public offering and new credit facilities. As a result, Teranet is expected to close 2006 with a very manageable debt burden of approximately $465 million, complemented by a robust liquidity position. While up to $100 million may be added back to the debt burden over the next five years to complete the automation of Ontario’s land parcel base, EBITDA interest coverage should remain well in excess of four times under normal economic conditions, highlighting the Company’s sizeable financial flexibility.

Note:
All figures in Canadian dollars.